Crossville Chronicle, Crossville, TN

February 24, 2012

Questions raised on conflict of interest

By Heather Mullinix
Assistant editor

— The Tansi Sewer Utility District voted Wednesday for President Herb Pallatt and attorney Don Scholes to represent the district in pre-resolution meetings with the Tansi Property Owners Association to resolve a lawsuit filed in September.

"The purpose of this resolution is to get the matter pushed forward," Pallatt said.

Some in the audience questioned allowing both Pallatt and Scholes to represent the district because both have connections with Tansi Waste Management, Inc., which is also named in the suit to recover $1.3 million in loans from the POA for construction of a sewer system in Tansi.

"You might have a problem while you're on the board of directors for both TSUD and Tansi Waste Management to represent both fairly," said Steve Frank. "You have an interest in both and what is good for Tansi Waste Management might not be good for the rate payers of TSUD." said Steve Frank.

Frank also noted Scholes represents both TWMI and TSUD.

"I believe he should either divest himself of one or the other companies," Frank said.

Pallatt said he had spoken with Scholes regarding a possible conflict earlier that day.

"On the surface, he sees no conflict of interest having me do it," Pallatt said. "It's a situation, do we want me to represent us in negotiations?"

He said the meetings would be more of a preliminary discussion with the POA and that no decisions could be made in those meetings. Any decision regarding a resolution of the suit would require a vote of the board.

Mike Dalton, TSUD board member, said, "'Are you comfortable with it?' is the key."

Pallatt said, "If there is a conflict, Don [Scholes] will let me know. I would suggest we proceed until such time as it may turn out to be a conflict of interest that I might want to step back from."

The lawsuit seeks to have the transfer of the sewer system, licenses, approvals and permits declared fraudulent and to have an attachment issued against the sewer system.

Jim Heath, TSUD board member, said, "As I understand the lawsuit, basically, they're challenging the legality of transferring the assets to us and asking a court to set that aside. And basically what they're trying to accomplish with this lawsuit is have all the sewer property returned to them.

"It's my personal opinion that if they think they can handle it better than we are and that's where they want to go, I would probably support that answer."

Dalton recommended changing the resolution to read a commissioner of the district and Scholes would meet with the POA so that another commissioner could step in if needed.

The board also briefly discussed a bill from Environmental and Civil Engineering Services that has been turned over to a collection agency. According to registered mail receipts, a bill for more than $430,000 for work on the sewer system during 2010. The liability was not included in the district's audit report.

Pallatt reported he had turned the bills over to Scholes to review and the district was challenging billing for some work that may have been done before TSUD was formed.

"There is nothing to report right now," Pallatt said, noting it was a legal matter and he was limited to what he could say.

Frank asked why, if the bill was received, it was not included in the district's records or provided to the auditor. Dalton said he did receive the bill in March, but that it contained no invoices or supporting material.

"There was not enough detail," Dalton said. "I didn't have enough information to make any sense of it. I didn't believe all of it was our responsiblity. Some of it, I believe, was before we formed. I shared my concern with Chuck [Burgess] and asked him for more documentation. I never received more documentation."

Frank said that, even if portions of the bill were disputed, it should have been part of the public record. He noted he filed an information request regarding the bill and was told no such record existed. He said state laws regarding misrepresenting information to state auditor, destruction or tampering with governmental records and official misconduct may have been violated.

Pallatt said he was not in a position to answer those questions and could not discuss legal matters in the meeting.

Burgess said he also could not discuss specifics of the matter as it had been turned over to a collection agency.

He did say, "We were doing it in good faith."

He said the company had worked as a consultant to pursue funding and put together a preliminary project for the district, work he often performs going a year or two years before being paid. At first, state revolving fund loans and Rural Development grants and loans were to be pursued.  Then, the district considered a bond to fund the project. When that was not pursued, Burgess said he decided needed to pursue payment for the work completed.

"But, basically, when we saw all the funding was not going to be pursued, I decided I had to go ahead," Burgess said.

"I was doing it as a favor to the utility because once I release those bills, certain funding agencies have a deadline that anything before that is not eligible for payment."